Investing in Edly
The following excerpt is from Allied’s original deal memo to investors. To review investment opportunities in full, please consider joining the syndicate at Allied.vc/join
Student debt in the United States continues to grow at a record pace, now the second-largest consumer debt category surpassing $1.7T. As such, we’ve been looking for an opportunity to support an innovative team in this space.
Enter Edly
Edly is an online marketplace that connects investors with students & schools seeking ISAs (Income Share Agreements) – allowing investors the opportunity to invest in the education of high-performing students at competitive schools while helping students to relieve the burden of student debt by only paying for their tuition once they land their first well-paying job.
Traditionally, if a student aspires to attend a private post-secondary institution but cannot afford to pay out-of-pocket, the student is forced to take out a loan and assume the risk of repayment. However, should the student graduate and fail to receive a job (or receive a low-paying job), the loan payments do not stop, and the student’s debt continues to accumulate.
As a result, student debt is now the second-highest consumer debt category in the US, surpassing $1.7T as more than 65% of college graduates report having student debt, 6% of which have debt totaling more than $100k (source: EducationData.org).
In response to this growing debt crisis, the Income Share Agreement, brought to light by popular online coding schools such as Lamba, provides an alternative to traditional student loans. For instance, ISAs supply students with the funds to pay for their education, yet only require repayment once the student has secured a job exceeding a minimum salary threshold.
Furthermore, instead of compounding interest, only once a student is gainfully employed and earning more than the minimum income threshold do they begin to repay the ISA based on a fixed percentage of their income.
Similar to what Pipe has done for revenue-based financing, Edly is unlocking and commercializing a new fixed income-like asset class with its innovative ISA (Income Share Agreement) marketplace that connects students and schools with investors seeking higher returns than traditional fixed-income products.
In a few short steps, investors can register on the Edly platform and begin generating potential returns of 8%-14%, all while providing alternative access to education financing and helping students to avoid traditional loans.
Why we are thrilled to support Chris, Chuck, and the entire team at Edly
Although many of those with federal student loans have received some form of temporary debt relief due to the economic impact of the Covid-19 pandemic, those with private loans have not had the same luxury, forced to watch interest accrue as they were unable to work.
As a result, we believe the student debt crisis in the US is coming to a head, with student debt more than doubling over the past decade; while public investment into higher education has declined (despite the average cost of tuition increasing by 213% over the same period).
Therefore, given the size and severity of this expanding crisis, we were delighted when we met the team at Edly and discovered their mission to unlock a new asset class while attempting to solve what we view as a real and intensifying problem.
1) Rapidly Expanding Market Opportunity
The private student loan category is now valued at more than $132B. In line with our investment thesis, we continuously look for companies exhibiting superior growth velocity within a large and rapidly expanding target market.
As for the ISA itself, there are now more than 60 US colleges offering income share agreements for students, along with several dozen coding schools globally. We believe ISAs will continue to gain popularity among students and academic institutions, achieving mainstream adoption as an alternative to private student loans.
As such, we believe Edly represents a unique and strategic opportunity to invest at a critical inflection point of an emerging asset class with multi-billion dollar potential.
2) Unparalleled Team with Significant Domain Expertise and Proven Execution
Edly founders Chris and Chuck are Wall Street veterans with more than 20 years of experience working in credit and capital markets.
Chris has worked a variety of senior roles on Wall Street, including former Global Head of Structured Credit at Merrill Lynch and Head of US Structured Credit at Credit Suisse. At the same time, Chuck spent 20+ years in the education finance space, helping to pioneer the first public college ISA program at Purdue University.
After years of experience and market research, Chris & Chuck saw firsthand the potential for an alternative to traditional private student loans and launched Edly in response to what they consider a growing debt crisis. Moreover, Edly managed to weather the global pandemic in H1 2020, learning from this stress scenario to build strength and resiliency into their product.
With unparalleled knowledge, networks, and resiliency to make ISAs a mainstream reality, along with the highly talented individuals who have joined their mission, the team at Edly are the types of proven and ambitious entrepreneurs in which we love to invest.
3) Innovative Solution and the Commercialization of a New Financing Asset Class
In 2016, Purdue University became the first major US public college to offer ISAs (as they are structured today), and Chuck worked on the construction of their ISA program. Since then, along with implementation by numerous Tier 1 institutions and coding schools, we believe ISAs have gained mainstream notoriety.
Moreover, since launching in 2019, Edly is widely considered a market leader, being one of the first platform marketplaces to facilitate investments into ISAs, now with more than $85M in tuition funded.
With its innovative ISA marketplace model, coupled with first-mover advantage, we are excited for the opportunity to invest in a company that is pioneering a new marketplace exchange for an emerging asset class that we believe will eventually reach mainstream adoption.
IN SUMMARY, we are investing based on our belief in the team’s ability to leverage their domain expertise and continue executing their vision to commercialize the ISA asset class with their marketplace solution within the expanding multi-billion-dollar student loan market.
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